AU-YEUNG SIU TONG v. FUNG MAY HUNG STELLA

HCA16117/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.16117 OF 1998

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J U D G M E N T

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THE CASE

1. This case is concerned with a flat in a 3-storey village house ("the house") in the New Territories. The flat is located on the Ground Floor of Lot No.726 in Demarcation District No.230, Siu Hang Hau, Sai Kung, New Territories ("the Flat"). The plaintiff entered into an agreement to purchase the Flat from the defendant. Pursuant to the agreement, the plaintiff paid deposit for the purchase price. Prior to the completion of the sale, the plaintiff carried out renovation work at the Flat. The sale, however, was not completed. The plaintiff now seeks the return of the deposit, the costs of the renovation and other damages from the defendant.

2. The defendant claims that she is entitled to forfeit the deposit. She denies that the plaintiff is entitled to recover from her the costs of the renovation. On the contrary, she claims from the plaintiff the costs of reinstating the Flat to its original state.

THE PLAINTIFF'S CASE

The 1st Agreement

3. On 19 March 1998, the plaintiff entered into a provisional agreement for sale and purchase ("the 1st Agreement") with the defendant for the purchase of the Flat. Clause 1(2) of the 1st Agreement expressly provided that a garden of 300 sq.ft was included in the purchase. The purchase price is $2,350,000. A deposit of $50,000 was paid by the plaintiff on the signing of the 1st Agreement. The 1st Agreement provided that a further deposit of $185,000 would be paid on the signing of the Formal Agreement. The balance price of $2,115,000 would be paid on the completion of the sale on 1 June 1998. Clause 13 of the 1st Agreement provided that :

"Note :

(1) Both the Vendor and Purchaser must complete the sale and purchase.

(2) The Purchase shall be allowed to get possession of the key of the said premises for the purpose of performing renovation upon paying 10 per cent of the (purchase price) as the further deposit.

(3) The Vendor commits to assist when necessary the Purchaser to apply to the government for renting the lands adjacent to the said premises.

(4) In the event that the Vendor requires more time to get the title of the said premises, the date of completion shall be postponed accordingly but such postponement shall not exceed three months."

4. The plaintiff stated that at the time of the signing of the 1st Agreement, he gave the defendant a layout plan showing the proposed renovation work he intended to carry out at the Flat for her consent. He told her that he intended to have a large garden area for use outside the Flat in addition to the 300 sq.ft garden area.

5. At the time of the signing of the 1st Agreement, the defendant was not yet the owner of the Flat although she had already moved in and lived on the upper two floors of the house. At the end of March 1998, the defendant informed the plaintiff that the completion could not take place on 1 June 1998 because she was unable to complete the transaction originally scheduled for 4 April 1998 with the previous owner of the house. She assured the plaintiff that the delay in completion was merely due to problems in financial management and had nothing to do with the title of the house.

6. The plaintiff and the defendant agreed that the 1st Agreement would not be acted upon but would be replaced by another agreement later on. At that time, the defendant still wanted to sell and the plaintiff still wanted to buy the Flat.

7. The defendant was aware that the plaintiff was required to vacate the flat that he was residing in or around May 1998. She had, on two occasions in April 1998, suggested to the plaintiff that he should start the renovation work so that he could move in the Flat earlier. She said that the plaintiff could do so even without paying a further deposit. The plaintiff refused and told her that he wanted to wait until she had completed her transaction with the previous owner.

8. In May 1998, the defendant informed the plaintiff that she would pay the additional monies asked for by the previous owner to complete the transaction. She asked the plaintiff again to commence the renovation. She assured him that even if the sale and purchase of the Flat would not be completed, he would suffer no loss by carrying out the renovation work prior to the completion and prior to the payment of the 10% deposit. She said that as a matter of standard practice for the sale of village houses, the purchasers could always take possession of the properties by moving in prior to completion upon payment of 30% of the purchase price as deposit. The defendant assured him that he would suffer no loss as he could enjoy the Flat at the meantime pending the formal completion. In fact, the defendant herself had followed the same practice and took possession of the house since April 1997 and resided on the 1st and 2nd floors of the same building since September 1997.

9. Because of the representation of the defendant and because of his own need, the plaintiff commenced the renovation work. The renovation work was quite extensive, this involved removing and rebuilding internal partitions and changing the position of the external doors and walls. He spent a total of $116,082 on the renovation. He was able to produce receipts for the work for $84,082. For the remaining $32,000, he could no longer find the receipts.

The 2nd Agreement

10. On 6 June 1998, the defendant completed her transaction with the owner of the property. On 7 June 1998, the plaintiff and the defendant entered into another provisional agreement ("the 2nd Agreement") for the sale of the Flat together with the 300 sq.ft garden. It was specified that the further deposit of $185,000 was to be paid on 20 June 1998 and the balance was to be paid on completion of the sale on 31 July 1998. Clause 13 of the 2nd Agreement provided that :

"Note :

(1) Both the Vendor and Purchaser must complete the sale and purchase.

(2) The Vendor commits to assist when necessary the Purchaser to apply to the government for renting the lands adjacent to the said premises.

(3) The Purchaser shall be allowed to get possession of the key of the said premises for the purpose of performing renovation upon paying the further deposit.

(4) Prior to completion, the Purchaser shall be allowed to reside at the said premises upon paying a sum equivalent to thirty percentages of the purchase price."

The Formal Agreement

11. On 20 June 1998, the parties signed the Formal Agreement for the sale of the Flat together with the 300 sq.ft garden. The further deposit of $185,000 was paid to the defendant's solicitors as stakeholder.

THE REQUISITIONS

12. Even prior to the signing of the Formal Agreement, the plaintiff's solicitors had raised requisition on title of the Flat and the garden area. The parties agreed that the only requisition that is relevant for this case is the one on the garden area. The plaintiff stated that in the middle of June, the defendant had asked him to pay $520,000 as further deposit of the purchase price. Since the defendant had assured him that the title of the Flat was in order, he told his solicitors that he would pay $500,000 on condition that the defendant was capable of showing and delivering a good title.

13. The payment was withheld because on 13 June 1998, the plaintiff's lawyer, Messrs Raymond Ho & Koo ("Ho & Koo"), informed him that the plan annexed to the Assignment dated 6 June 1998 between the defendant and the previous owner did not show the garden area that the defendant agreed to sell to the plaintiff. On 13 June 1998, Ho & Koo wrote to Messrs Wing-sum Lo & Co ("Lo"), the defendant's solicitors, that the title documents supplied by Lo made no reference to the garden area. In fact neither the Assignment made by the previous owner to the defendant nor the annexed plan referred to any garden area.

14. On 15 June 1998, Lo replied stating that the defendant would arrange to rectify the plan annexed to the Assignment which would include the garden area.

15. On 18 June 1998, Ho & Koo wrote :

"Concerning your reply to our letter dated 15 June 1998, we have the following comments :-

We await your plan showing the 300ft garden area. Furthermore, the plan annexed to the Assignment does not show that the property is within the parameter of the land grant. Please clarify its status, i.e. whether it is a government land or a common area within the grant."

16. Ho & Koo also wrote to Mr Michael W.K. Yuen, the architect responsible for the construction of the property and asked him whether the garden area falls within the perimeter of Lot No.726 in DD 230 and whether the garden area was 300 sq.ft.

17. On 20 June 1998, Lo sent to Ho & Koo another copy of the Assignment and the Deed of Mutual Covenant dated 6 June 1998 ("the DMC"). The Assignment now included the garden area. Another plan was attached to the Assignment which was amended to include the garden area.

18. On 22 June 1998, Ho & Koo wrote to Lo stating that the garden area shown on the plan annexed to the Assignment appeared to fall short of 300 sq.ft. They further asked for a letter from the authorised architect confirming that the garden area annexed to the Assignment was 300 sq.ft and within the boundary of the Lot. Ho & Koo further referred to the amendment and asked for documentary proof that the previous owner had no objection to the change in the plan and the description.

19. On 23 June 1998, the architect wrote to Ho & Koo stating that :

"Your letter dated 20th June 1998 refers.

Please note that :-

1. The shown garden area falls within the parameter of Lot No.726 in Demarcation District 230; and

2. The shown garden area is 300 sq.ft.

Thank you for your attention."

20. On 24 June 1998, Lo referred to the architect certificate. They also confirmed that the previous vendor had no objection to the change in the plan and the description. They stated that unless they heard from Ho & Koo to the contrary within the next two days, they shall release the $185,000 to the defendant.

21. On 24 June 1998, Ho & Koo wrote and asked for the following :

"1. reasons why the plan attached to the letter by Michael Yuen was not signed;

2. the exact measurements concerning the width and the length of the garden area was not shown on the plan;

3. which portion on the plan is the garden area?

Such information is crucial in fulfilling your client's undertaking to assist our client to obtain a licence pursuant to clause 45 in the Agreement for Sale and Purchase."

They also asked for written confirmation that the previous vendor had no objection to the amendment.

22. On 24 June 1998, the architect sent in a new plan on which the dimensions of the garden were shown.

23. On 10 July 1998, Ho & Koo wrote to Lo referring to Lo's letter of 24 June 1998. They asked for documentary proof from the previous owner's solicitors to confirm that the previous owner had no objection to the change in the plan and description. They further asked whether the defendant and the previous vendor would initial the amendments.

24. On 10 July 1998, Lo sent a plan of the property with measurements signed by the architect showing the garden area. As the plaintiff wished to obtain a licence from the government, he instructed a surveyor to carry out a survey. The surveyor in his report dated 24 July 1998 stated that a portion of the balcony of the house was built outside the Lot boundary and that a portion of the garden area was erected outside the Lot boundary.

25. On 23 July 1998, Ho & Koo wrote to the District Lands Office, sending a copy of the survey report and asking the District Lands Office to investigate the matter.

26. On 24 July 1998, Ho & Koo wrote to Wong Hui & Co. ("Wong Hui"), the solicitor for the previous owner. They referred to the amendments in the Assignment which now included the garden area. They asked whether Wong Hui or their client had approved the change in the plan and the description of the property. Copies of the two Assignments were given to Wong Hui.

27. On 25 July 1998, Wong Hui wrote stating that they were not aware of the amendments to the Assignment of the Ground Floor until the receipt of Ho & Koo's letter.

28. On 25 July 1998, Ho & Koo wrote to Lo referring to the surveyor report. They stated that :

"This has a title implication. Please let us have your urgent clarification."

On the same day, Ho & Koo wrote to Lo handing over the keys of the Flat to the defendant. They referred to the encroachment on the government land.

29. On 27 July 1998, Ho & Koo wrote to Lo referring to the reply from Wong Hui that they had no knowledge about the amendments to the Assignment. They asked for an explanation.

30. On 30 July 1998, Lo wrote to Ho & Koo on other matters regarding the sale. They, however, gave no answer to the matters raised in the two letters dated 25 and 27 July 1998. This letter was received by Ho & Koo on 31 July 1998.

31. On 31 July 1998, which was the date of the completion, Ho & Koo wrote to Lo, stating, among other things :

"3. Furthermore, you have not answered our enquiries raised in our letters dated 10 July 1998, 25 July 1998 and 27 July 1998 nor indeed have you produced any evidence to the satisfaction of the Purchaser that the 300 Sq. ft garden area shown on the Assignment plan falls within the lot boundary.

...

Your client is contracted to sell the legal ownership of the premises on the Ground Floor together with the 300 Sq.ft garden area as shown in the Assignment plan. Up till now, your client has not been able to show that he is the legal owner of the 300 sq.ft garden area. In these circumstances, your client is not selling what he has contracted to sell. As the subject matter of the contract is different, this amounts to a fundamental breach of the contract.

Our client has instructed us to hereby give you notice that unless your client is in a position to sell what he has contracted to sell and can discharge the above outstanding title requisitions before the agreed completion time, our client will exercise his right of rescission as provided for in clauses 20 & 44(c) to rescind the Agreement for Sale and Purchase and to recover from your client all loss and damages that our client incurred or may suffer arising from or incidental to your client's default as aforesaid."

No completion took place on that day.

32. On 1 August 1998, Lo wrote to Ho & Koo :

" Without prejudice to the fact, we put on records that our client has tried to contact your client including through your goodselves by us to dissolve the matter raised by you and the date of postponement of sale and purchase, but no any response from your client.

We are instructed by our client to request your client to reinstate the original state of the delivery vacant possession for your client's decoration."

DID THE PLAINTIFF SHOW A GOOD TITLE TO THE PROPERTY?

33. The duty of the defendant as a vendor of the property is to show and give good title to the property (clause 16 of the Formal Agreement). The duty to show title includes a duty to answer requisitions adequately : Active Keen Industries Ltd v. Fok Chi Keung [1994] 1 HKLR 396.

34. The defendant referred to clause 44 of the Agreement and argued that the defendant's duty to prove that the garden was within the boundary was by production of the architect's plan and it did not require evidence of the prior approval of the previous owners. Clause 44 is in the following terms :

" The parties declare that the further deposit paid hereunder shall be held by Messrs. Wing Sum Lo & Co. as Stakeholder who shall not release the same to the Vendor unless and until :-

(a) the Vendor can produce evidence to the satisfaction of the purchaser that the 300square feet garden area adjoining the Property is located within the boundary of the Lot No.726 in D.D. 230 ("the Lot") and

(b) the Vendor can produce a plan from a certified architect to be annexed to the Assignment dated 6.6.1998 showing that the Property covered the garden area;

(c) If for any reason, the Vendor fails to fulfil her obligations under sub-clause (a) & (b), the Purchaser shall have the option to rescind this Agreement whereupon all deposit paid herein by the Purchaser to the Vendor shall be returned to the Purchaser without prejudice to the Purchaser's right to claim against the Vendor for all losses and damages sustained by the Purchaser by reason of the Vendor's failure and/or inability to complete the sale in accordance with the terms hereof and it shall not be necessary for the Purchaser to tender an assignment to the Vendor for execution."

35. It is clear from clause 44 that the duty on the defendant was not discharged simply by the production of the architect certificate. The production of the certificate was only one of the conditions that the defendant had to fulfill before the deposit can be released by the stakeholder to her. In this case, the previous owners had stated that they had not agreed to the amendment of the description in the Assignment and in the plan. The surveyor also found the garden to be outside the Lot boundary. These clearly called for an explanation from Lo which they had failed to do before the completion on 31 July 1998. In my view, the defendant failed to show a good title to the property.

36. If the conditions under clause 44 had been complied with, then clearly the further deposit could be released by the stakeholder. In this case, the stakeholder, namely Lo, did release the deposit to the defendant. However, this is not an indication that the defendant had in fact produced evidence to the satisfaction of the plaintiff that the garden was located within the boundary. In the letter dated 22 July 1998, Ho & Koo stated that :

"Under Clause 44 of the Agreement for Sale and Purchase, it has been agreed between our respective clients that the sum of HK$185,000 will be held in your firm as stakeholder until the matter concerning the garden area has been cleared up. In the meantime, all our client's rights are reserved."

On 24 July 1998, Lo wrote :

" Unless we hear from you to the contrary within the next 2 days, we shall release the sum of HK$185,000.00 being the further deposit to our client."

Although there was no response by Ho & Koo to this letter, clearly Lo could not unilaterally impose the deadline on Ho & Koo because they in fact had not responded to the letter of Ho & Koo dated 24 June 1998 on the written confirmation of the previous owner. Although the plaintiff in his witness statement said he was prepared to proceed with the sale, this must be read subject to the production of evidence of good title to the garden area. Certainly, as is apparent from the correspondence, Lo had never taken the position that all the requisitions regarding the garden area had been adequately answered and, therefore, the deposit was properly released and there was no further requirement for the defendant to answer the requisitions.

RECOVERY OF DEPOSIT

37. As it was the defendant who was in breach of the Formal Agreement, the plaintiff is entitled to recover the $235,000 deposit he had paid to her.

THE RULE IN BAIN V. FOTHERGILL

38. The defendant relied on the rule of Bain v. Fothergill (1874) LR 7 HL 158 which provides that if the reason for discharge of the contract is the fact that the vendor is unable to make a good title, the purchaser is not liable to seek damage for the vendor's breach so long as the defect in title is "one of title". The purchaser may recover the deposit, interest and conveyancing expenses but nothing else.

39. There are exceptions to this rule which need not be dealt with here. What is more important is that the rule in fact can be modified by agreement between the parties. In this case, clause 20 of the Formal Agreement provided that :

" In the event of the Vendor failing to complete the sale of the Property in accordance with the terms hereof, all moneys paid by the Purchaser to the Vendor pursuant to the provisions of this Agreement shall be returned to the Purchaser who shall also be entitled to recover from the Vendor damages (if any) which the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the purchaser to tender an Assignment to the Vendor for execution." (emphasis added)

This clause clearly modifies the rule in Bain v. Fothergill.

IS THE PLAINTIFF ENTITLED TO RECOVER THE COSTS OF THE RENOVATION?

40. The real question in this case is even if the plaintiff can recover other damages from the defendant, whether the costs of the renovation he had spent on the Flat before completion is recoverable. In Lloyd v. Stanbury [1971] 1 WLR 535, Brightman J held that a purchaser who had been led into possession before completion and had spent money on improvements to the property was not entitled to claim for such expenses because they would not usually have been within the contemplation of the parties. See also Barnsley's Conveyancing Law & Practice, 4th edn, p.257 and Farrand on Contract & Conveyance, 4th edn, pp.177 and 178.

AGREEMENT FOR DECORATION

41. In this case, the plaintiff said that there was an agreement between the parties in which he was allowed to carry out the renovation work even before completion and there was an assurance by the defendant that he would suffer no loss even if the sale could not be completed. This was disputed by the defendant. She said that she only gave the keys to the Flat to the plaintiff to carry out the decoration after the Formal Agreement was signed in June 1998. Clause 38 of the Formal Agreement expressly allowed the plaintiff to enter as a licensee to the property for the purpose of carrying out decoration and renovation work upon payment of the deposit of $185,000. The defendant seemed to make use of this clause when she said that the plaintiff only entered into possession after the signing of the Formal Agreement. She further said that there was no reason for her to invite the plaintiff to carry out the renovation in the Flat before the completion.

42. I do not find the defendant to be a credible witness. She is someone well versed in property transactions. She owns a property company. I accept the plaintiff's evidence that he had entered into possession of the Flat in May 1998 at the invitation of the defendant and had carried out extensive renovation work in the premises. He had shown a plan to the defendant on the nature of the renovation. The defendant was living in the same house on the upper storeys and it is just unbelievable that she would not have noticed the extensive building work that took place on the ground floor. This involved the demolition of walls and doors and repositioning the doors and windows. She said that prior to June, the plaintiff merely stored the building materials in the Flat. In my view, the defendant is deliberately not telling the truth on this issue.

43. In ordinary circumstances, it would indeed be odd for the vendor to invite the purchaser to carry out decoration in the property before completion. However, I find that this is in fact what happened in this case. The position is that the defendant herself had entered into possession before the assignment of the whole of the house to her on 6 June 1998. She had carried out decoration and lived on the upper storeys. In my view, the reason why she would allow the plaintiff to enter into possession is because she wished to ensure that the plaintiff would buy the Flat. At that time, she knew that she was not able to complete the sale in June with the plaintiff because she had not yet obtained the title from the previous owner. At the same time, she clearly did not want her transaction with the plaintiff to go off in the event that she could acquire title to the house later on. I find that she had assured the plaintiff that he would suffer no loss even if the sale was not completed. This means that if, pursuant to the assurance, the plaintiff had entered and incurred expenses in the decoration, he is entitled to recover them from the defendant if the sale was unable to complete due to the fault of the defendant. This is in fact what happened.

44. I found the plaintiff to be an honest person. He had given a truthful account of the events that had taken place. I accept his evidence and that of his contractor that by the time the 2nd Agreement was signed on 7 June 1998, about 85% of the renovation work had been completed and the remaining work was in respect of the painting of the Flat and other minor decoration. I accept his evidence that he had incurred $116,082 by way of renovation and he is entitled to recover them from the defendant.

COSTS OF REINSTATEMENT

Clause 38

45. Clause 38 of the Formal Agreement provided, among other things, that :

" (d) If for any reason whatsoever this Agreement for Sale and Purchase should be rescinded or repudiated by either party hereto or if the Purchaser shall otherwise fail to complete the purchase by the Completion Date (as mentioned in Clause 3 hereof) the licence hereby granted shall thereupon without any further act or notice any the Vendor be revoked and the Vendor shall become entitled to re-enter upon the Property and repossess the same free from any right or interest of the Purchaser therein and the Purchaser shall forthwith vacate himself, his agents, his workman and his properties from and deliver up vacant possession of the Property;

(e) Upon delivery of vacant possession by the Purchaser aforesaid, the Purchaser shall at the option and demand of the Vendor either remove at his costs all works or part thereof which have been done to and become fixtures of the Property caused by such removal or disclaim all his interest and claim therein free of any costs to the Vendor and in the first mentioned event, if the Purchaser shall fail to at the demand of the Vendor remove the fixtures and make good the damages to the Property, the Vendor shall be entitled to remove and make good the same and all expenses thereby incurred by the Vendor shall be recoverable from the Purchaser as a debt;

(f) The Purchaser shall fully indemnify the Vendor and keep the Vendor harmless against all claims, liabilities, expenses, damages, proceedings and action which the Vendor may incur or be liable for as a result of or by reason of the execution of decoration and/or renovation works at the Property by the Purchaser;"

Defendant's evidence

46. The defendant claimed that she had incurred $380,600 in reinstating the Flat. She had obtained three quotations for the reinstatement before she instructed her contractor to carry out the reinstatement.

47. The defendant's case on the reinstatement work is unsatisfactory. After Lo wrote on 1 August 1998 requesting the plaintiff to reinstate the Flat, nothing was heard on this matter until 18 November 1998 when the defendant's present solicitors, Messrs Lau Kwong & Hung ("Lau Kwong & Hung") wrote that the defendant had decided to exercise her right under clause 38 of the Formal Agreement to remove the decoration work and would seek to recover the costs from the plaintiff. By that time, the plaintiff had commenced the action against the defendant. Paragraph 20 of her Defence filed on 20 November 1998, pleaded that "the defendant has incurred the expenses of $380,600 in engaging contractors to remove the renovation works and make good the damage".

48. The plaintiff visited the Flat in December 1998 and found that there was no construction work in the Flat. On 2 January 1999, Ho & Koo wrote to Lau Kwong & Hung asking for an inspection of the Flat. The response came on 6 January 1999 which stated that :

"... the works to reinstate the premises has started but not yet finished, we further write to inform you that there may be risk upon your client or his agent to visit the premises as there are a lot of construction works on site that your client or his agent might be injured." (emphasis added)

49. On 10 January 1999, the plaintiff inspected the Flat. He found there was no renovation work at all. The internal partition was the same as when he handed back the Flat to the defendant in July 1998. He visited the Flat again on 11 January 1999 and found there was no sign of building work. Building work was only noticed by him when he visited the Flat on 13 January 1999.

50. The defendant clearly was not forthright about when she actually started the reinstatement work in the Flat. Equally, her evidence on the amount of the reinstatement was clearly unsatisfactory. She claimed that on 6 November 1998, she had paid $80,600 to the contractor for the reinstatement work and on the same day, she issued a cheque for $300,000 to the contractor. The receipt issued by the contractor stated that "this cheque will only be cleared upon completion of all works". In November 1998, the reinstatement work had not yet commenced. I find the work was only commenced shortly before 13 January 1999. It really was meaningless to pay the whole of the contract sum to the contractor even before he had begun work. Furthermore, it just did not make sense for the defendant to pay the cheque of $300,000 when it was not meant to be cleared until the work was completed. If the defendant had indeed paid $380,600 to the contractor, I do not accept that it was for the purpose of reinstating the Flat. The defendant had clearly not given a true account on this matter.

51. Furthermore, the sum of $380,600 was, in any event, excessive. The plaintiff carried out the renovation work for $116,082. He had asked the contractor who did the renovation for a quotation of the reinstating work. $61,900 was the price. He further obtained two other quotations in March 1999, one was for $143,000 and the other one was for $132,200. These two sums were based on renovation work of a similar type of house.

52. The defendant sought to justify her price by saying that some of the walls that had been removed were load-bearing walls and should be rebuilt with concrete. However, her quotation referred to the reinstatement of brick walls and not concrete walls. Hence, this could not be an explanation for the high price. In my view, the defendant had clearly arranged to inflate the price in order to set off the claim made by the plaintiff against her.

53. The defendant had instructed a surveyor Mr Daniel Ho ("Mr Ho") to carry out a survey of the Flat. He stated that the alteration work of the Flat should all be reinstated according to the original building plan. The defendant had not made any submission or called evidence on why the Flat should be kept in accordance with the original building plan. Mr Ho further stated that the floor had been lowered and this violated the Building Ordinance (Application to the New Territories) because the permitted height of the house was exceeded. He was, however, not aware that the District Lands Office had, by letter dated 6 June 1994, informed the previous owner that it had tolerated the breach because of excess of the permitted height of the building. It appeared that the height had already been exceeded before.

54. Mr Ho further stated that the electrical distribution board, power switches and power sockets installed in the bath had violated the "safety standards laid down by EMSD and CLP".

Defendant not entitled to the costs of reinstatement

55. In my view, the defendant is not entitled to claim the costs of reinstating the premises from the plaintiff despite the express provision of the Formal Agreement. The plaintiff was asked by the defendant to carry out the renovation work with the assurance that he would not suffer any loss even if the sale was not completed. The plaintiff had carried out the renovation work pursuant to this assurance. In my view, the defendant is estopped and precluded from seeking the costs of reinstatement from the plaintiff.

OTHER DAMAGES

56. The plaintiff is seeking the costs of investigation of title to the Flat in the sum of $10,130, counsel's fees in the sum of $12,000 and stamp duty in the sum of $32,250. The only dispute on these sums is in respect of counsel's fees. Ms Tsui, counsel for the plaintiff, referred to Sihombing and Wilkinson on Hong Kong Conveyancing, Vol. 1, paras.305-315 and 317 and submitted that Ho & Koo's duty of investigating title included the duty to seek counsel's opinion. In the present case, however, no evidence was adduced as to why Ho & Koo considered counsel's opinion was required on the question of title. The issue was a narrow one and they had identified it all along. This being the case, I would not allow the claim for counsel's fees.

CONCLUSION

57. Accordingly, there shall be judgment for the plaintiff for the following relief :

(1) A declaration that the plaintiff had effectively rescinded the Formal Agreement.

(2) Repayment of the deposit of $235,000 from the defendant.

(3) A declaration that the plaintiff has a lien on the Flat to the extent of $235,000.

(4) Repayment of the stamp duty paid in the sum of $35,250.

(5) Repayment of the renovation costs in the sum of $116,082.

(6) Repayment of the legal costs of $10,130.

The plaintiff is entitled to the interest on the sums that the defendant is required to pay at judgment rate from the date of the service of the writ until payment. The plaintiff is to have the costs nisi of the action.

58. The defendant's counterclaim is dismissed with costs nisi to the plaintiff.